Question

Assess the following statements S1 and S2. Are they both true, both false or is only...

Assess the following statements S1 and S2. Are they both true, both false or is only one true? Justify your answer.

S1. When output is above equilibrium, wage setters will secure wage increases that reflect the tightness of the labour market.

S2. If output is consistently above equilibrium, then real wage expectations by wage setters are constantly frustrated

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Answer #1

1. When output is above equilibrium, wage setters will secure wage increase that reflect the tightness of the labour market.

This statement is right because when output is above the equilibrium lavel then wage setters will increase the secure wage rate to create balance between the demand and supply of the labour.

2. If output is consistently above equilibrium then real wage expectations by wage setters are consistently frustrated.

This statement is not true because when output is consistently below the equilibrium then real wage expectations by wage setters are consistently frustrated.

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